Philips reports solid growth for Medical Systems in second quarter

4 August 2005

Philips recorded net income of 983 million (0.78 per share), compared with net income of €616 million (€0.48 per share) in the corresponding period of 2004. The €367 million increase in net income was entirely attributable to the sale of NAVTEQ shares, which yielded a non-taxable gain of €753 million.

Solid growth at Medical Systems and Lighting was offset by declines at Semiconductors and Mobile Display Systems (MDS). Sales amounted to €7,087 million, 3% lower than in Q2 2004. The weaker US dollar and dollar-related currencies, as well as various divestments, had a downward effect of 2%. On a comparable basis, sales decreased by 1%.

Income from operations amounted to €147 million, compared to €356 million in the same period of 2004. Financial income and expenses resulted in an expense of €57 million, compared with an expense of €65 million in Q2 2004. Income taxes included a €109 million tax gain relating to a final agreement on prior-years tax settlements.

Unconsolidated companies contributed €822 million to net income; this included the gain on the sale of NAVTEQ shares. Results from unconsolidated companies in Q2 2004 amounted to €430 million, including a net license gain of €99 million related to InterTrust Technologies Corp. LG.Philips LCD's contribution to net income was €10 million, compared to €251 million in Q2 2004.

Cash flow from operating activities was an inflow of €37 million, compared to an inflow of €62 million in Q2 2004. Inventories as a percentage of sales amounted to 13.3%, compared to 12.5% in Q2 2004.

Gerard Kleisterlee, Philips' President and CEO said: "We continue to make steady progress in implementing our strategy by delivering on our management agenda. The quarter showed growth in both the revenue and profitability of our Medical Systems business; we also announced the first acquisition in this important field. In a weak consumer retail environment, we are seeing the benefits of our Business Renewal Program in Consumer Electronics. Weakness in the technology sector, however, continued to hamper our results."

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